US bank stocks drop as Moody's downgrade sours sentiment (updated)
08/08/2023 12:24
(Updates shares, adds analyst comment)
Aug 8 (Reuters) - Shares of U.S. banks fell in premarket
trading on Tuesday after ratings agency Moody's downgraded 10
mid-sized lenders, reigniting investor concerns about the
challenges facing the industry.
The rating agency said rising funding costs, a possible
decline in deposit levels and weaker profitability pose risks to
the banking sector, which went through a crisis earlier this
year after the collapse of three lenders.
Moody's also warned it may cut ratings of some of the
biggest U.S. lenders, and placed six of them under review for a
potential downgrade.
Of those, shares of Bank of New York Mellon BK.N and U.S.
Bancorp USB.N fell more than 2%, while Truist Financial
TFC.N and State Street STT.N dropped over 1%.
"The Moody's announcement is a wake-up call," Stuart Cole,
chief macro economist at Equiti Capital, said.
"It is significant for U.S. growth too, as U.S. regional
banks are the financing lifeblood for small and mid-size
enterprises."
Shares of Bank of America BAC.N , Citigroup C.N and
JPMorgan Chase JPM.N fell more than 1%. Their ratings were not
part of Moody's latest changes.
Deposits, which have been a pressure point for banks since
Silicon Valley Bank failed earlier this year, will also continue
to decline as high rates prompt customers to look for
alternatives that provide higher yields.
"Although the general drain on deposit funding caused by
quantitative tightening (QT) moderated in Q2, there remains a
significant risk that systemwide deposits will resume their
decline in coming quarters," Moody's wrote in its note dated
Monday.
Still, some analysts remained positive about the sector.
"The overnight news doesn't really dent our view on U.S.
banks because we have been favoring quality and liquidity as a
whole, our view on the broader sector still remains
constructive," said Georgios Leontaris, chief investment officer
for Switzerland and EMEA at HSBC Global Private Banking and
Wealth.
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(Reporting by Niket Nishant, Bansari Mayur Kamdar and Shashwat
Chauhan in Bengaluru; Editing by Shounak Dasgupta and Saumyadeb
Chakrabarty)
((Niket.Nishant@thomsonreuters.com))